Reality Forces EU to Soften Stance on Greece

Germany and the International Monetary Fund appeared to soften their stance on the Greek debt crisis over the weekend ahead of an European Union summit which could decide whether the debt-ridden euro member is given a new tranche of international aid.

Angela Merkel

"On the one hand, we should demand that the agreements on which we decided together are kept. But on the other hand, we should, in our role as friends and partners, offer assistance and support, " she said.

Christine Lagarde , the managing director of the IMF, said too much austerity in Greece could impact the credibility of the plan to bring its debt burden under control, in an interview with CNBC's Maria Bartiromo.

"If we put upon them obligations that they simply cannot deliver on, because it's just too hard and too much — the program is not going to be credible. So, our position is that we would rather have a program that is difficult but credible, rather than a program that is going to be so difficult that it is not credible. It takes time, " Lagarde said.

With the Greek economy stuck in a deep recession and unemployment topping 25 percent , the "troika" (the European Commission, the European Central Bank , and the IMF) is reported to be about to give Greece the time it is needed. Der Spiegel, the German magazine, reported that Athens will be given another two years to implement tough budget cuts and reforms.

According to Der Spiegel, the troika now expects Greece to miss its debt targets under the terms of its bailout with the ECB and IMF. The IMF expects total Greek debt to hit 140 percent by the end of the decade, versus a target of 120 percent of gross domestic product . The Spiegel report claims public-sector creditors will need to forgive some of Greece's debt to achieve that target.

Greece itself expects another year of recession in 2013, with the economy contracting by nearly 4 percent and its debt-to-GDP ratio hitting 179 percent.

Over the weekend, a leading member of the ECB governing council indicated that plans where afoot to help Greece lower its debt to GDP ratio. German ECB board member Joerg Asmussen said Athens may be able to buy back some its bonds with cash from the European Stability Mechanism.

While key players are softening their stance on Greece, others in Northern Europe may not have seen the memo.

"It's most probable that they will leave, " said the Swedish Finance Minister Anders Borg, referring to Greece as the IMF meeting in Tokyo drew to a close. "We shouldn't rule out this happening in the next half-year."